Isle of Man Budget 2016
Monday 22 February 2016
This was the last budget before an election; the Government is not in a position to give away significant benefits to taxpayers and the Treasury Minister was unlikely to introduce cuts in services or increases in tax so close to an election. Mr Teare’s room for manoeuvre was limited. Nevertheless, there were some interesting developments.
On the tax front, there is a new relief for the development of properties. This is a five-year tax holiday for profits in respect of property development or rental, where that property development is beneficial to employment in the Island. The profits will be taxed on distribution by a company - as with other profits taxed at 0% - so this relief is a deferral of tax rather than an absolute exemption.
It is slightly surprising that National Insurance (NI) has not been levied on employment income for employees over 65. Also, a 1% increase for both employee and employer NI that has been introduced in the UK has still not been introduced in the Island.
The assessor has not yet gone as far as the UK in allowing flexibility as to how pension funds can be utilised, but he has extended the scope for commutation of ‘trivial’ pension schemes. Where a taxpayer has a pension fund of up to about £70,000 it will be possible to extract a tax-free lump sum and to take the rest of the fund as taxable income. The option was previously only available at age 60, but this has been reduced to 55.
On the economic front, most taxpayers will be relieved that expenditure on Government services is not being reduced and taxes are not being raised. Mr Teare has often said that despite the significant reductions in income that have been imposed on the Government, he will not ‘slash and burn’ Government expenditure as he is aware of the impact that this could have on the local economy. While this is comforting, the accountants and economists reviewing the Budget will wonder when substantive rebalancing will take place. It should be acknowledged that getting the Revenue Account back into balance, after such a large exogenous shock, is a tremendous achievement. Nevertheless, there are significant costs not included in the current-year revenue account that need to be funded out of income. These include expenditure on renewal of capital, assets, loan repayments and future pension increases. These may now be issues to be addressed after the election.
For additional information, please contact Phillip Dearden.